Asked by Landon Busse on Jul 26, 2024
Verified
If firms have to account for external costs of production, then they will ________ compared with what they would do if they did not have to account for the external costs.
A) underproduce and underprice
B) underproduce and overprice
C) overproduce and underprice
D) overproduce and overprice
External Costs
Costs that affect parties who are not directly involved in the production or consumption of a good or service, often leading to market failures.
Underproduce
The act of producing less than is demanded or expected, often leading to shortages and increased prices.
Overprice
The act of charging a price for a product or service that is higher than what is considered fair or reasonable.
- Identify the effects of externalities on societal costs, societal benefits, and the productivity efficiency.
Verified Answer
RM
Ronalyn MoralesJul 29, 2024
Final Answer :
B
Explanation :
When firms have to account for external costs of production, such as pollution, they will likely produce less to minimize these costs and charge higher prices to cover the additional expenses associated with mitigating or compensating for these externalities. This leads to underproduction and overpricing compared to a scenario where these costs are ignored.
Learning Objectives
- Identify the effects of externalities on societal costs, societal benefits, and the productivity efficiency.